Private student loans and the alternatives

When funds get tight, you won't be alone in feeling tempted by a private student loan. But, there are a lot of factors to consider before taking one out, including the lower-risk alternatives.

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If you've been researching further options for funding at uni, you've likely come across ads for private student loans.

Though these may seem like a reasonable option, we think that private loans should only ever be used by students as a last resort.

It's no secret that there are some issues with how the government's Maintenance Loans are calculated, particularly as they're based on your parents' income. But you won't find a private loan company out there that offers anywhere near the level of flexibility when it comes to repaying your loan.

Private student loan companies generally offer higher interest rates and are less likely to take into account the problems you may face when entering the world of graduate employment.

If you're considering taking out a private student loan, we'd strongly recommend you check out some of the facts and consider the alternatives.

What is a private student loan?

Private student loans are loans offered by for-profit companies to students who need funding to help cover tuition or maintenance costs.

Unlike the government's Student Loans, which you only start to repay when you're earning above a certain amount, the repayment of some of these loans has been known to start while you're still at uni. Others may give you a short grace period after you graduate, such as up to six months, before starting repayments.

In the past, some of these companies have also been known to charge seriously high interest rates, making the total repayment far exceed what was originally borrowed.

The average student in our latest National Student Money Survey was spending around £504/month more than the average Maintenance Loan for students from England in 2023/24. It's difficult to see the benefit of taking out a loan at uni if the repayments add to your monthly spending.

There's also the risk that things don't go to plan with your graduate job and having to start repaying a loan could add to the stress of graduate job searching.

A well-known example of a private student loan provider is Lendwise. They offer private student loans to postgraduates and undergraduates in their final year of study, and advertise loans of up to £10,000 on their website.

They list the average borrower rate at 10% APR. While this interest isn't on the same level as some other private student loans we've seen in the past, it is still higher than the Maintenance Loan from the government and carries with it far more risk.

Remember, unlike any government Student Loans, you'll be expected to start making repayments on the loan after a set period, no matter what your income is. If you find yourself in a situation where you can't meet the repayments, you'll be charged late payment fees, which will more than likely also damage your credit rating.

This could lead to you falling into debt.

Past controversies with private student loan companies

In August 2019, we reported on the news that UCAS had sent an email to students with marketing material about Future Finance Loan Corporation Limited.

Future Finance was a private student loan company offering loans with some pretty hefty interest rates. For example, in October 2022, there was a representative example on its homepage of a £4,000 loan for 112 months at a rate of 20.4% APR (variable). This would result in a sizeable repayment of £10,958.36.

This caused a fair amount of shock and outrage on X (formally known as Twitter). Students, the NUS, academics and Save the Student were among those calling out UCAS for the email.

In our news piece about the controversy, we looked into past complaints about misleading aspects of Future Finance's marketing. These included that their interest rates weren't indicated in adverts and that they'd written 'student loan' in bold. This could have implied they were official Student Loans provided by the government.

Worryingly, we noticed similar things in the email from UCAS, which did not include Future Finance's interest rates. On top of that, it had the phrase 'Wherever you're heading, our flexible Student Loans can help you get there' written in bold.

Particularly when taking out a loan, it's crucial to be as informed as possible to help you make the right choice. Make sure you're fully aware of your options for funding at uni by checking out the alternatives to private student loans below.

Short term student loans

There are also companies out there offering students short term loans with shockingly high interest rates.

These companies often advertise their loans as 'specially designed for students', or 'helping' students, when realistically the extra financial burden they create does anything but help.

Though it may be tempting to think if you're only borrowing for a short time, you won't be charged the interest, this is not always the case. We've found companies offering student loans with a repayment period of up to 36 months, with APRs ranging from 9% APR anywhere up to 1,721% APR.

With such high interest rates, our advice would be to steer well clear.

Save the Student's student money expert, Jake Butler, said:

Every student's situation is different. However, I would suggest that if you're considering taking out a private loan like this, it should be as a last resort.

Borrowing money with such extortionate interest rates can have serious implications and will likely be something you live to regret.

Companies target students that are desperate by offering what appears to be a quick and easy fix. I would urge any prospective borrowers to look into their alternative options and make the right decision, even if it seems tricky in the short term.

Private student loans for international students

If you're an international student looking to study in the UK, you won't be eligible for a loan from the UK government.

Though there are plenty of options for funding, studying in the UK is not cheap and you'll be paying substantially more in tuition fees than your fellow UK residents.

There are private student loan companies that are aimed at international students studying in the UK. For example, for students from the US, many UK universities give details of Sallie Mae's Smart Option Student Loan. These loans are calculated based on your future salary expectations and are paid directly to the university. The university will then disburse the money to you.

Though we realise that the UK can be a pricey place to study as an international student, we would strongly recommend you check opportunities for scholarships and all other options for financial support before committing to a private student loan.

Alternatives to private student loans

To avoid private student loan companies, these are the best alternatives:

1. Student Loan from the government

   

   Credit: Yevgen Kravchenko, kamui29, Bell Photography 423 – Shutterstock

   As the first port of call for funding at uni, we'd always recommend the government's official Student Loan.

   While the way it's calculated is by no means perfect, the government's Student Loan has a manageable and secure repayment method.

   With it, you only repay a percentage of your earnings over a certain amount of money. If your salary ever drops below the threshold, you stop repaying. That way, your monthly repayments should never be anything more than you can afford.

   Private student loan companies do not offer this option, so if your salary drops, or you find yourself out of work, you will still be expected to make the repayments.

   Also keep in mind that although interest is added to Student Loans from the government, it's a fraction of the percentage added by private student loan companies.

   Plus, you only have to repay your government Student Loan for a limited period (depending on whether you're on Plan 1, Plan 2, Plan 4 or Plan 5) before the debt's cancelled. In fact, many will never repay theirs in full. Private student loans, on the other hand, need to be paid back in full, with the added interest.

   If your Student Loan from the government isn't big enough, we have plenty more funding suggestions below. And, to find out more about your Student Finance options from the government, check out our guide to Student Finance, head to gov.uk or chat to student support at your uni.

2. Extra Student Finance

   After getting a Student Loan from the government, there is, unfortunately, a risk that this alone won't be enough to cover all of your living costs.

   If this is the case, you can look into extra Student Finance options, like grants, bursaries and scholarships.

   There are many different types of funding available, including:

   • Scholarships for students from ethnic minority backgrounds
   • Disabled Students' Allowances (DSA) which are available to students with mental and physical health problems
   • NHS bursaries, including the NHS Bursary, the Learning Support Fund and Social Work Bursaries
   • Scholarships for international students.

   You may also be surprised by how niche some other scholarships, bursaries and grants are. For example, you could get a grant for being vegetarian, a bursary for having the surname 'Graham' and a scholarship for being talented at e-sports.

3. Family support

   

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   You may be in a position where your parents are happy and able to support you financially at uni. Getting zero-interest funding from the bank of mum and dad is far less risky than taking out a high-interest private loan.

   To see how much the government expects your parents to give you, check out our parental contributions calculator.

   Of course, not all parents can or do give money to their kids at uni.

   You could also reach out to other members of your family and close friends to see if they could help you out financially. This might still be as a loan rather than a gift. But, hopefully, it comes with no (or minimal) added interest.

4. Part-time job

   Got some spare time at uni between contact hours? Having a part-time job that fits around your studies can make a big difference.

   It's one of the most common ways that our surveyed students fund their living costs, with 58% working part-time. While they're not for everyone, a flexible job can be a great way of making money, while also boosting your CV.

   Obviously, being able to get a part-time job depends on your degree and uni hours. But if your course really is too full on during the term, there's always a summer job.

   For a lot of students, a part-time job involves working shifts in shops, restaurants and pubs. However, there are also a number of other types of jobs you could apply for, too.

   If you're looking for ideas, check our list of the best-paid part-time jobs for students.

5. Student overdraft with 0% interest

   One of the best perks of having a student bank account is the 0% interest overdraft. This essentially means that you can borrow money from the bank, without having to pay any interest.

   If you're in a position where you feel like you need to borrow money to cover uni living costs, you could consider getting a fee- and interest-free overdraft from the bank first. The limits can be as high as £3,000.

   Choosing this route rather than borrowing from private student loan companies could work out much cheaper. It gives you an emergency fund to help you get through to your next loan instalment without added interest.

6. Sell unwanted belongings online

   

   Credit: bbernard – Shutterstock

   If you're looking for quick ways to make money, see if there's anything you could sell.

   Along with the other suggestions on this list, selling your unwanted belongings can help you avoid taking out a private loan.

   It's really easy to make money selling things online. It can be anything from old CDs, DVDs and games, to empty toilet rolls.

   Your old belongings can be sold on sites like Amazon or eBay. Or, you may want to try upcycling them and selling them on Etsy.

   You could also look through your wardrobe for clothes you no longer wear. There are lots of places to sell them – sites like Depop, for example.

7. Student credit cards (repaying the balance every month)

   Credit cards should always be used carefully. This means that you should clear the balance before the deadline each month to avoid interest. However, they can really help you get by before the next instalment of your Student Loan.

   If you're not confident you'll be able to pay off the balance in time, don't use them. Instead, try getting an extension on your interest-free overdraft. But, when your overdraft is maxed out already, and you're sure you'll be able to repay the money in time, a student credit card can be a good option.

   Look out for ones that offer a 0% interest period as an introductory offer. You may need to look beyond student credit cards to find these offers. Please note that it's not guaranteed that your application will be approved.

   If you do get a credit card with a 0% interest period, you should be able to make emergency purchases at the end of term without paying any extra interest on top of what you've borrowed.

8. Credit union loans

   Tried all of the above and still struggling for money? Before heading to a private student loan company, you could consider taking out a loan from a credit union.

   Credit unions are non-profit organisations that are set up by communities. They're intended to help people avoid private loans when they're in need of money.

   They generally have much lower interest rates than private loans. That's why it's worth seeing if you can find one that suits you and has reasonable rates first.

   If you're unsure where to look, you can head to the Find Your Credit Union site.

9. Crowdfund your degree

   

   Credit: Pixel-Shot - Shutterstock

   This is by no means the easiest suggestion on the list. However, it's still worth considering the option of crowdfunding your degree.

   We've heard some great success stories about students who have done this. It'll take some time and effort to set up the best possible online crowdfund page. Plus, you'll need to work hard to get the word out there about your campaign on social media. But, if this method works, it really works.

   If you can run a successful crowdfunding campaign for your degree, this not only means you can avoid private student loans, but it would also massively boost your CV. It shows that you have some impressive skills and dedication.

10. Take a year out to save money

    We completely get that you might want to crack on with your studies. However, we'd suggest at least having a think about whether a gap year before or during your degree could be worth it.

    It might seem like a drastic step, but taking a year out to work and save money can make a massive difference to your finances. If you take the year out instead of borrowing money from lenders, it could save you from making private loan repayments for years ahead.

    There are many options to save money if you take a year out. For example, you could consider finding a full-time job, living with your parents to save on rent and budgeting very carefully.

    This is definitely not a decision to rush into. Before deciding whether this is the right step for you, talk to your university about it. They may be able to offer you hardship funds or other support to help you avoid taking a year out. Which brings us to our next point...

11. Discuss your options with university student support

    Everyone's personal financial situation is different at uni.

    In this guide, we've outlined the best general alternatives to private student loans. But, to ensure you make a decision that's right for you, please also talk to student support services at your university to get tailored advice.

    They'll be able to assess your personal situation and suggest the best next steps. It may be that they offer you hardship funds, or highlight which specific grants, scholarships and bursaries you could apply for.

    Remember that they're there to help you. You'll never know what support they can offer you until you ask.

Find out the best ways to manage your money and budget effectively at uni with our simple guide.